Assessing forestry-related assets with the intertemporal capital asset pricing model

Wenjing Yao and Bin Mei

Forest Policy and Economics, 2015, vol. 50, issue C, 192-199

Abstract: The intertemporal capital asset pricing model is used to assess the risk–return relationship between forestry-related assets and innovations in state variables using quarterly returns from 1988Q1 to 2011Q4. Market excess returns and innovations in the small-minus-big and high-minus-low factors, interest rate, term spread, default spread and aggregate consumption explain about 80% of the variation in cross-sectional returns of 16 forestry-related assets. Beta loadings on innovations in high-minus-low, interest rate and term spread induce significant risk premiums, and should be priced to determine the cross-sectional expected returns of the forestry-related assets. In general, average excess returns of the forestry-related assets decrease from the period of 1988Q1–1999Q4 to the period of 2000Q1–2011Q4. Significant positive excess returns are obtained in the first sub-period for private- and public-equity timberland assets but not in the second sub-period. Insignificant excess returns are obtained for forest products and timber products in the whole sample period. The results are robust to different specification tests.

Keywords: ICAPM; Innovations; Forest investments; State variables; Time series (search for similar items in EconPapers)
JEL-codes: G12 Q23 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:forpol:v:50:y:2015:i:c:p:192-199

DOI: 10.1016/j.forpol.2014.06.006

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